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Lowered credit limits hit small business

Jeremy Simon

Apparently, small business hasn’t been spared the fallout from the ongoing credit crunch.

Recent data from the Federal Reserve showed that credit card issuers tightened lending standards and lowered credit limits for some borrowers in the final months of 2006. Such defensive measures make sense at a time when the largest U.S. credit card issuers have announced massive provisions to protect against defaults on credit card loans.

Some small business borrowers look to be among those experiencing lowered credit limits. In a post on The Vest Pocket Consultant (hat tip: The Wall Street Journal), Rosalind Resnick shares the story of small business owner Michelle Wood, whose American Express credit line was slashed by $10,000 because her handbag company, Lil’ Diva Enterprises, was not registered with business information provider Dunn & Bradstreet.

Lil’ Diva’s head diva shared her reaction to that AmEx decision on her own blog, The Diva’s Diary. “Holy cow, that hurt! Especially since I have excellent credit and have made every payment on time,” Wood said. “Gee- thanks for believing in me, American Express.”

Wood writes: “How many small, new businesses even have a Dunn & Bradstreet rating?! I knew this was just a line of B.S. because they’re trying to avoid their own credit crisis because of non-paying customers. Boy, am I pissed to say the least. I haven’t worked up the nerve to call them yet because I’m afraid I will say something I will regret.”

She isn’t the only borrower who’s fuming. Credit cardholder stories out of the United Kingdom have included a responsible consumer who nevertheless had his credit limit slashed by more than 93 percent within three months. Domestically, consumers have complained about Bank of America rate hikes targeting good cardholders who always make on-time payments.

Have other small business owners, like Ms. Wood, also been feeling the pinch of lowered credit limits? Vent your frustrations to us at Editors@CreditCards.com or via those friendly little comments boxes at the bottom of this page. Any responses I share at a later date will be kept confidential at your request.

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  • Hi
    Just thought I’d share a bit here. I opened my recording studio/ record label officially back in Oct 07. I was operating out of the apartment that is above the studio since Feb/March of 06. I was issued a Chase Business card with a 12 mo. 0% agreement March 06 with a 6K credit line. I had it increased once to 11K and toward the end of the term they raised it to 13K them selves. I just paid it off entirely (almost 9K, not one late payment) and went looking for another. Capital One was most happy to accept me and I was feeling positive. That’s until the letter of acceptance came and showed the meager $500 credit line. I called and inquired. No increasing until usage has been established and then an evaluation period of undisclosed time would take place to determine if and how much the line would be raised.
    This was ridiculous and stated as much to the customer service agent. You can’t run a business with only a $500 credit line. We’ll not most anyway. He gave a very dry rendition of the on-screen crafted reply for this type of situation and proceeded to explain how this would be a learning experience for Capital One with busy business men like my self. I canceled the card. I explained that without a definitive set of time parameters for “re-evaluating” my payment and usage I could be strung along the entire term of the 12 mo 0% period. Again he stated that this would be a learning experience for Capital One for busy business men like my self.
    Now I aware that no company is going to give you your credit limit upon application. But I’m now convinced that this is what the credit companies are going to do for small business credit lines. I went from 6K to $500 even with good credit, no late payments and full pay off of the balance before the end of the introductory offer. Very difficult times ahead I fear.
    Dan-O
    Richmond Digital Media
    Snake Oil Records/Recording
    Richmond, VA.

  • Brown

    Some time ago I received a Platinum card from Chase for my LLC. $50,000 limit. Maybe they could be helpful.

  • ORFisherman

    I am a 12 year customer of the gold card. I have a perfect payment history and have ever had a problem until this year. AMEX has started a new policy of averaging your usage for the last 3 months, evaluating your credit score on a monthly basis (a score by the way you cannot obtain without a fee), and then setting limits on your spending. This is whether you have a perfect payment history or not. By doing this, they limit their exposure to risk in the declining economy (in their opinion), however they also alienate perfectly good customers that have been only sporadically using the card and may have recently incurred more debt (like anew car or new house). This is a ridiculous policy and the idiot that came up with it should be fired. Not to mention, I hope someone in the Govt realizes the unfair practice of using a score to decline credit, a score which the consumer has to pay to see. I have seen my “no limits” spending feature dropped from “unlimited” to $21K, to $8K. This is because when they ticked me off the first time by changing from “no-limit” to a $21K limit, I stopped using the card for business travel. Then, as I did use it sporadically, they lowered the limit again because my “average” usage was low. How stupid is that? My recommendation, pass the word along and have everyone you speak to complain. Call them and complain, write them and complain, email them and complain and stop using the card! If their usage drops and their complaints rise someone in AMEX Corporate will get wind of it and hopefully fire the idiot that stated the new policy.